In this clip from THE PITCH, we give you an inside look at how a research analyst's high-conviction stock idea becomes a manager's winning position.
Watch below as Financials analyst Josh Steiner pitches Hedgeye CEO Keith McCullough on Capital One (COF), Steiner's new 'Best Idea' Long position.
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"This morning we're going to pitch a name that I think most consumer are familiar with; Capital One (COF) on the long side. There's really a perfect storm of positives backdrops here.
The macro setup is very compelling; we have a very reflationary and favorable #Quad2 backdrop. Obviously the monetary side is there, and the fiscal side has been a huge component of the last 10 months for $COF, and that looks unlikely to change. The credit performance this cycle has been unlike any we've ever seen. $COF is also now in a position where they've added so much cash to their balance sheet that they're going to rollout a very large stock buyback.
From a valuation standpoint, the stock is very cheap relative to the broader bank group.
Capital One is also the largest subprime auto lender in the U.S. The Covid-induced Work From Home dynamic has triggered a massive demand for new and used vehicles. Used car values have just exploded to the upside, and haven't shown any signs of rolling over. This is an enormous boost for their car loan portfolio and huge tailwind for the stock.
The company recently announced they'll be buying back $7 billion of the stock; which will be about 60 billion shares of the 460 billion total. While the Street's consensus view is for shares to remain flat, the potential is for the share count to come down very quickly. You're also likely to have much stronger earnings per share with the lower share count.
The setup here looks really good from both a macro and an earnings perspective."
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The Call is our morning research call hosted by Hedgeye CEO Keith McCullough with our 40+ analyst research team. It helps small and large investors alike make better decisions via unique and investable stock/sector updates. Click here to learn more.